Do you have one or a couple children who plan on attending college? Unless you hit the lottery recently, you are definitely going to need some financial planning to assist in paying for your child’s education.
College costs have skyrocketed over the years and college expenses can lead to some major changes in your family’s financial planning. You need to consider your budget as well as college savings and financial aid.
Creating and knowing your budget is the first step in college financial planning. Many families use their disposable income towards the major expense, tuition. However, there are numerous other college costs to consider. There will be college visits, standardized tests and applications fees, dorm room decorations, holiday travel home and maybe even study abroad expenses. The key to having a successful financial plan is the inclusion of these essential expenses.
While your child is still in high school, you may be able to free up some cash from your monthly budget to help pay for college expenses. Time flies by and the sooner you can start putting money aside, the better equipped you will be to pay for college. It is also important to speak with your child about his or her aspirations and what they believe college will look like for them. Many college students work while they are in college to help pay for portions of their education. Your child may want to do this or maybe even work their junior and senior years of high school to financially contribute to their college education. Again, having these conversations and planning ahead are imperative.
Financing your child’s education can be done several different ways. As previously discussed, simply setting money aside is always great. However, there is also a 529 college savings plan that is most useful the earlier it is started. The 529 allows you to save for college and withdraw the monies tax-free as long as they are used for qualified college expenses.
In addition, the following are more ways to save:
- Roth IRAs: Utilized to fund college as this retirement account is funded with post-tax dollars so there is no income tax on withdrawals.
- Coverdell Education Savings Account/ESA: A tax-advantaged account where withdrawals for qualified education expenses are tax-free.
- The Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA): A way to give children money, property or securities through custodial accounts.
And finally, let’s not forget financial aid, scholarships, federal grants and loans need to be considered into your financial planning for the family. Depending upon your family’s income level and how many children you have in college at the same time, your child might not qualify for federal grants or loans. Be sure to complete the Free Application for Federal Student Aid (FAFSA) to see how much aid your child may receive.
There are many points to consider when planning for your child’s college education. The sooner you start, the better. If you have questions or concerns, please give Gleason Tax Advisory a call 716-720-5339 to help ease your mind and create a plan.